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The Actuary The magazine of the Institute & Faculty of Actuaries
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… and across the Channel?

Nearly 60% of continental European pension schemes have admitted that they are technically insolvent, according to a new survey by Greenwich Associates, a US-based consulting firm.The schemes plan to raise their exposure to equities and move more money into alternative assets, including hedge funds, in an effort to reduce funding gaps.

The research, which covered 282 institutional investment professionals in continental Europe, found that continental funds have larger pension deficits than those of the UK and US.

Greenwich said the effect of the bear market had been more acute on the Continent for three reasons: Continental equity markets had fallen further than in other regions, funds moved out of bonds and into shares just before the equity bubble burst, and continental market regulation has forced schemes to sell stock at unfavourable times.

Berndt Perl, consultant at Greenwich, said: ‘It is difficult for a lot of plan sponsors to see how they will be able to cover their obligations to beneficiaries – except by obtaining large contributions from employers.’

The report found that almost half the institutions want to raise their allocations to European equities, while many plan to cut their exposure to European government bonds in favour of corporate debt. Greenwich estimates that over the next three years institutions investing in hedge funds will grow by a factor of ten, and six times as many expect to use more private equity vehicles.

Greenwich’s Chris McNickle said: ‘A long-term asset allocation balanced between equities, fixed income, and possibly alternative investments, based on your time horizon and risk tolerance, continues to make sense.’

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